The World Has Plenty of Oil

Nasen Saleri writes today in the Wall Street Journal (subscription required):

Many energy analysts view the ongoing waltz of crude prices with the mystical $100 mark — notwithstanding the dollar’s anemia — as another sign of the beginning of the end for the oil era. “[A]t the furthest out, it will be a crisis in 2008 to 2012,” declares Matthew Simmons, the most vocal voice among the “neo-peak-oil” club. Tempering this pessimism only slightly is the viewpoint gaining ground among many industry leaders, who argue that daily production by 2030 of 100 million barrels will be difficult.

In fact, we are nowhere close to reaching a peak in global oil supplies.

He goes on to say four factors will determine when we have reached our peak oil output:

The four factors — resources in place (how many barrels initially underground), recovery efficiency (what percentage is ultimately recoverable), rate of consumption, and state of depletion at peak (how empty is the global tank when decline kicks in) — are inherently uncertain.

Let’s focus on the rate of consumption for a moment. As gas prices continued to increase Americans continued to use record amounts of gasoline. Most of us just adjusted what we bought. Gas is a very important resource that allows millions of people to drive to work, the grocery store, to see family, etc. We need it. So to save money in order to keep the tank full, Americans have been going to McDonald’s one less time per week.

Just yesterday the Wall Street Journal reported:

As crude-oil prices climb to historic highs, steep gasoline prices and the weak economy are beginning to curb Americans’ gas-guzzling ways.

In the past six weeks, the nation’s gasoline consumption has fallen by an average 1.1% from year-earlier levels, according to weekly government data.

That’s the most sustained drop in demand in at least 16 years, except for the declines that followed Hurricane Katrina in 2005, which temporarily knocked out a big chunk of the U.S. gasoline supply system.

The free market is an amazing thing isn’t it?

This time, however, there is evidence that Americans are changing their driving habits and lifestyles in ways that could lead to a long-term slowdown in their gasoline consumption.

Liberals rejoice! Politicians didn’t have to raise taxes on us or the oil companies. We are using less gas on our own. Don’t hate on the free market.

But, why are gas prices continuing to go up if we are using less. The Wall Street Journal has the answer:

Investors piling money into commodities as a refuge from inflation have helped push oil prices close to their inflation-adjusted record of $103.76 a barrel, set in 1980.